A business model is a concept of a company’s operation that describes the main components through which it functions, creates value, generates profit, and grows. These components include the target audience, product, competitive strategy, and sales channels.
A business model is the DNA of a business. Just as a child’s DNA contains all the information about the person they will become—gender, height, hair color, eyes, and even talents—even before birth, so too does the business model determine what a specific business will be like.
The foundation of a business model is “product-market fit.” This concept means that the company has correctly chosen its target audience and guessed the idea of its product. The market positively perceives the company’s product, and this is expressed in customers’ willingness to pay for it.
Components of a Business Model:
Target audience or target audience segments (in cases where the audience is heterogeneous) — this is a clear understanding by the company of who it considers its target customer, a deep understanding of their psychology, the nature of existing problems or needs. For the success of a business model, it is very important to ensure that there is a sufficient target audience in the market for significant company growth, and that the market is not too small.
Product or product line — this is an offer that can satisfy the needs or solve the problems of the target audience.
Competitive strategy — the answer to the question of why the target audience will choose to buy from this particular company, in other words — what will the customer lose or miss out on if they buy elsewhere? The absence of a quality competitive strategy leads to many situations where the customer will choose other offers or demand a discount because they found the same thing elsewhere, only cheaper. As a result, the company loses growth dynamics and profitability (due to reduced sales prices). That is why it is important to continuously take care of its quality competitive strategy.
Sales channels — these are the ways in which a business directly sells its products to the target audience. It is important not to confuse them with sales promotion tools, such as advertising. Sales channels include the chains of interaction with customers.
Sales channels are direct and indirect. Direct channels involve the company’s direct interaction with the customer, while indirect channels involve interaction through intermediaries or partners.
Direct Sales Channels:
Direct online sales (online store, landing pages for individual products or services)
Physical points of sale (stores, showrooms, stands at exhibitions and fairs)
Active direct sales (the sales department works through selections of potential customers in “cold” mode and offers cooperation)
Indirect Sales Channels:
Retail distribution (company sales representatives sell products to retail stores or chains, where the end customer buys them)
Sales through marketplaces (products are published on online marketplaces, where the customer buys them)
Sales through dealers and distributors (products are shipped to intermediary companies, which then sell them to end customers, adding their markup)
Affiliate sales — sales through various referral programs
Partner sales — collaborations with other brands and companies
Franchising — building a network of franchisees and selling through them
These are key but not exhaustive examples of direct and indirect sales channels. After the company has ensured that it clearly understands its target audience and market size, and has developed a quality competitive strategy, it is important to correctly identify sales channels. After all, further, when building a marketing and sales strategy, the quality of these channels will determine the commercial success of the business.
It is important to understand that the world is entering a period when competing on business efficiency is becoming more difficult, because business education is becoming more widespread and accessible, and artificial intelligence allows for much faster solutions for optimizing operational processes. Therefore, competition today is shifting precisely to the plane of business models. And the ability to build strong competitive business models with high growth potential is one of the most important skills for you as an entrepreneur.
